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ETH2.0: PoS pledge has a profound impact on ETH

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The properties of PoS pledge and ETH are mutated.

Original author: Blue Fox Notes

With the release of the Ethereum storage contract, people are more and more interested in ETH2.0 .

ETH2.0 is an upgrade to the current Ethereum, it needs to solve the scalability and cost issues of Ethereum . In the past few months, almost all crypto users have felt deeply: Ethereum is too congested and fees are too expensive. However, ETH2.0 needs to change the consensus mechanism, implement sharding, alleviate the congestion problem of Ethereum, and build a better infrastructure for the DeFi ecosystem.

So, what is the difference between ETH2.0 and Ethereum today? First, there are two different chains to begin with. ETH2.0 is a PoS chain, which is two different chains from the current PoW chain of Ethereum. The two will eventually merge in the future.

ETH2.0 is not a one-time implementation, it is a huge system project. According to the planning of Ethereum, ETH2.0 has three main phases:

Phase 0 (phase 0)

Phase 0 p>

Phase 1 (Phase 1)

Phase 2 (Phase 2)

However, these three stages are advancing in parallel, not the linear advancement as people imagined. On the whole, ETH2.0 will bring PoS consensus, sharding, new virtual machine (eWASM), etc.

(The ETH2.0 development route that people imagine is different from the actual one , Meeseeking)

Among them, Phase 0 is mainly based on the beacon chain. Phase 0 has been tested for more than 4 months since July 2020, and now the ETH storage contract has been released, which means that the ETH2.0 beacon chain (beacon Chain) will officially start. Once the week before December 1, its pledged ETH reaches 524,288 ETH (that is, 16,384 validators), the main network can be officially launched.

Beacon Chain is a PoS chain, and it also prepares for the management of fragmented chains in the future. It involves the management of pledgers, Management of pledged funds; random number generator; random selection of block producers; formation of a validator committee to vote on proposed blocks; rewards and penalties for pledgers, etc.

After Phase 0 starts, the Ethereum network will have two chains, one is the PoW chain, and the token is ETH1 , and the other is a PoS chain, and the token is ETH2. Users can transfer ETH1 to ETH2 and become validators, but currently it is a one-way move. Users cannot exchange ETH2 back to ETH1.

Phase 1 is mainly about fragmentation. Phase 1 plans to deploy 64 shards, plus the beacon chain, for a total of 65 chains. The beacon chain is the hub chain, which communicates bi-directionally with the other 64 shards. Phase 1 mainly involves writing data in the shard chain while achieving validity and consensus.

Phase 2 At this stage, the integration of the system begins, and the new virtual machine supports the execution of accounts, contracts, and states. You can transplant the tools you are familiar with before and so on. All in all, ETH2.0 is a huge project, and it will take at least a few years to be finally completed.

(Relationship between ETH1x, ETH2 and Rollup, Trent Van Epps)

Then, for the launch of ETH2.0, what is worth paying attention to for ordinary users?

The PoS pledge of ETH2.0 will lock a large amount of ETH

The current DeFi market has locked 7.8 million ETH, with a current value of more than $3.7 billion.

(ETH locked in DeFi, DEFI PULSE)

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However, as ETH launches its storage contract, the final locked amount of ETH will far exceed this level in the future, and it is estimated that it will exceed 5 million in the short term ETH is deposited, and in the medium and long term, at least 10 million or more ETH will enter the pledge contract.

With the entry of wallets, exchanges, DeFi protocols, and ETH pledge service networks, it may even reach 2000-3000 The deposit of 10,000 ETH. On the one hand, it is because the barriers to entry are lowered, and the most important thing is based on the current return on pledge of ETH2.0.

(the relationship between the amount of ETH pledged and the income, ethereum.org )

As can be seen from the figure, with 10 million ETH pledged, the annualized return can reach 5.72%. Exceeding the storage income of ETH in the current market, even if 30 million ETH is deposited, the yield can reach 3.3%, and the income is priced according to ETH. If the price of ETH rises, the income will be even higher.

At the same time, if considering that a considerable proportion of ETH has been lying in the wallet for a year, it means This means that the actual circulation of ETH will continue to decline for a period of time in the future. As PoS matures, ETH will gradually become a low-inflation asset, and may even become a deflation asset with the implementation of the EIP-1559 proposal. For the EIP-1559 proposal, you can refer to the previous article "Ethereum EIP-1559 and Value Capture of ETH". It will also be mentioned below.

At present, many people are worried about whether ETH2. The storage contract has just exceeded 100,000 at present, which is still a long way from the minimum requirement of 524,288 ETH.

There are several problems that need to be resolved. With the resolution of these problems, one is that the start-up will not be a problem, but sooner or later, there is a high probability that the start-up will be completed within this year; second, with the emergence of more and more ETH2.0 pledge service networks, ordinary users will also You can participate in the pledge of ETH2.0. These pledge service networks will solve the following problems:

ETH amount Small inability to participate in the problem. Staking service networks like Rocket Pool, according to their plan, only need 0.01ETH to participate in staking and earn income;

The technical threshold of verification nodes. Although setting up nodes is not too complicated, it is quite troublesome for most ordinary users, and the pledge service network can help users solve this problem;

Liquidity issues of pledged tokens. At present, many people do not participate in the pledge because they are worried that after ETH is transferred to the storage contract, they will not be able to transfer or withdraw temporarily. The pledge network can give users corresponding equity tokens after users deposit ETH. For example, in Rocket Pool, users will get rETH, and rETH can be traded, pledged, etc., without worrying about liquidity issues.

Punish risk issues. Many users are worried that they will be punished for participating in the pledge. With the pledge network, this pressure can be alleviated through distributed deposits.

Currently at least a dozen projects like Rocket Pool, Ankr, Stafi, Lido, liquidsatke, stakewise, codeFi, etc. are in On the one hand, these projects can solve the problem of ordinary users participating in staking, and on the other hand, these projects themselves are worthy of attention. At present, there are many players on this track, and there is no real leader. You can pay attention to the follow-up user experience and word-of-mouth of these projects, so as to find related opportunities. For more information, please pay attention to the previous article " Rocket Pool’s ETH2.0 Business”.

If ETH2.0 locks more than tens of millions of ETH, this will greatly reduce the ETH circulating in the market, and at the same time , with the development of DeFi, there may be a situation where the demand for ETH exceeds the supply of ETH. In this case, if the overall market sentiment turns warmer, it means that ETH also has the opportunity to follow the halving effect of BTC and form an upward momentum.

If this happens, it will be two-wheel drive, showing a different upward trend from 2017.

In addition, ETH plans to launch EIP-1559 in the future. The so-called EIP-1559 is a mechanism to change the pricing of Ethereum network transactions , from the original auction mechanism to the charging mechanism of basic fee + tip. The original auction mechanism is that users bid, miners choose transactions with high bids, and package them into blocks first. This mechanism leads to low bidding efficiency, it is difficult to predict how much the bid is appropriate, and it is easy to cause delays, selfish mining and other problems.

The most important point of the EIP-1559 payment structure is that its basic fee is destroyed, and this part of the fee is through ETH Payments, which means that if the scale of economic activity on Ethereum is large enough, it may cause a large number of ETH to be destroyed, although ETH is an inflation mechanism. But if its transaction volume is large enough, it may cause the destroyed ETH to exceed the newly issued ETH, which may cause ETH to enter deflation. Of course, this scenario is unlikely to materialize in the short term.

Whether it enters deflation or not, the destruction of ETH can reduce its circulation. If this happens, miners will pay more attention to ETH's block rewards; and holders will no longer regard ETH as a tool for value circulation, but will gradually regard it as a token for value storage. In this case, ETH has two values: one is value circulation; the other is value storage. Because ETH itself is not only based on consensus, but also based on revenue, this allows ETH to capture a truly solid fundamental value.

At present, the annualized revenue and fee income of Ethereum is 580 million US dollars, which already has a certain scale.

(ETH annualized fee income, Tokenterminal)

The above is to look at the pledge effect of ETH2.0 from the superficial level of income, but if we further analyze it, we will find that the PoS pledge mechanism of ETH , not only allows pledgers to earn income, but also causes major changes in the properties of ETH, which will have a significant and far-reaching impact on the long-term value of ETH.

ETH property changes under PoS pledge

Considering the PoS pledge mechanism of ETH2.0, ETH itself has become a productive asset, which can generate income through pledge, which allows it to capture the value of system growth.

Both PoW and PoS are a mechanism to help the blockchain achieve consensus, and there are many differences between the two. From the perspective of system operation, one of the differences is: one is "externalized" and the other is "internalized". As time goes on, the two chains will exude more and more different temperaments.

In the Pow mechanism, miners have invested in energy and hardware assets, and they are more inclined to sell them for profit , is "externalized". At the same time, BTC is generated through external means of production. BTC itself is not a means of production. BTC is more like a commodity, which is generated through energy and machines. ETH under PoW, like BTC, is more like a virtual commodity and is mined. generate.

The PoS mechanism is "internalized", and ETH itself has become a tool for obtaining income and a means of production. The more tokens you stake, the more rewards you will get. In PoW, the means of production are energy and hardware, and in PoS, ETH itself is the means of production. This makes ETH under PoS have completely different properties from BTC and ETH under PoW.

In addition, there is another feature of generating income through ETH pledge, that is, it does not have counterparty risk, the risk is the agreement The inherent risk of the system. If BTC is tokenized and borrowed on Ethereum DeFi, although it can also generate income, it has counterparty risks. The income generated in this way is still exogenous.

The new attribute of ETH as a means of production will make it more scarce in the future and more integrated with the system , so as to capture greater value and obtain a greater premium.

Finally, it needs to be emphasized that the encryption market is extremely volatile and risky, and the market is always unpredictable. Any logic and reasoning is pale in front of the black swan. At any time, you must do your own research, do your own risk control, and do your own decision-making.